INFORMATION

Saturday, June 28, 2008

As you fight through the current economic downturn, try to find simple ways to improve profits. Recent articles suggest the higher cost of living has resulted in diners who tip less and buy fewer extras (double whammy for servers). When your recently seated guests turn down bottled water or another beverage, ask them if they'd like a nice pitcher of ice water.

If you see someone more than twice a week, offer complimentary dessert. Its cheaper than a coupon war.

As a frequent traveler, I often dine alone in off season tourist locations. Since I build inventory control databases, I see these locales at their lowest traffic levels. You get a first hand view of the baseline business. The patrons are very much friends and are treated like royalty. Its not unusual to see a guest jump behind the bar and stand in when the owner takes a restroom break. In return, these friends are often offered a complimentary drink or asked to sample a new menu item.

People in these towns frequent each other's restaurants and there is a strong community feel. The cooperation is viral. When you return to the same towns years later, you will find the core network still in place. Turnover in the other spots is tremendous.

You see this type of cooperation in urban neighborhoods. There are blocks in New York's Greenwich Village or Upper West Side with this spirit. Similar treatment of loyal patrons and other restaurateurs in the neighborhood is evident.

As the folks on Wall Street abandon companies left and right due to missed earnings estimates, now is a great time for independents to focus on their loyal guests. Whether you are a single unit operator or run a growing chain, try to become a part of your community.

There are many major chains who get it. You see their names as sponsors of many charitable events.

These are times when payback comes for Little League sponsorships, your pizza served to the kids on the local swim team, and sending food to the Special Olympics. Encourage your loyal patrons to spread the word to their friends. Let everyone know you want the community to florish.

Saturday, June 21, 2008

Simple linear regression is an excellent analysis tool for sales forecasting, budgeting and cost efficiency studies. Although the name sounds inviting to many, the number of restaurant operators taking advantage of the power of regression is too small. Today, spreadsheet software performs all the complex calculations required to determine the least square coefficients.

In layman's terms, regression analysis is the process of finding the best straight line through a scatter of data points. Once you take the time to graph your data points, a person with a sharp eye can closely approximate the best fit. The data points in simple regression are plotted on an X-Y graph. The Y axis is the dependent variable and represents the information you are forecasting or analyzing in your model. On the other hand, the X axis contains independent variables.

You may want to plot labor cost as a function of sales. In this example, labor cost depends on sales and is our dependent variable. We would use the Y axis for the labor cost values. Sales would be plotted using the X axis. Most labor cost curves would slope upwards to the right. As our sales increase on the X axis, the labor cost climbs higher. Why would anyone take the time to plot their labor cost as a function of sales? Isn't simple percentage analysis easier and better suited to management meeting discussions?

I believe understanding your fixed labor component is a critical piece of information for any operator. Regression allows you to see both the managerial effectiveness (fixed labor cost) and the staff productivity (slope of the line).

The common formula for the line: Y = a + bX where Y would be our labor cost estimate, a would be our fixed labor expense and b would be the % of sales represented by our variable labor cost. This is a fairly powerful tool and the model requires very little work. A simple list of data points is all you need to feed Excel (Week, Sales, Labor Cost). The formula for calculating the least-square coefficients looks complex and contains Greek alphabet symbols. In reality, its all a matter of finding the best line which a person with a sharp eye can approximate.

Rather than worrying about the mechanics of the formula, trust your eye to show you if the spreadsheet formula worked correctly. Excel has several built-in functions to handle linear regression estimates. The descriptions below are taken directly from Excel's help utility:

INTERCEPT functionCalculates the point at which a line will intersect the y-axis by using existing x-values and y-values. The intercept point is based on a best-fit regression line plotted through the known x-values and known y-values. Use the INTERCEPT function when you want to determine the value of the dependent variable when the independent variable is 0 (zero).

SLOPE functionReturns the slope of the linear regression line through data points in known_y's and known_x's. The slope is the vertical distance divided by the horizontal distance between any two points on the line, which is the rate of change along the regression line.

The INTERCEPT function will answer our fixed labor cost question and the SLOPE function will answer the % of sales spent on variable labor.

Based on a very unscientific survey of local restaurants, I have noticed a pickup in mid-week traffic. Parking lots have gone from nearly empty in March to spotty on slower nights. Weekends are still jammed here in Northern Virginia.

It helps to offer patrons a lower check average. Operations are getting a bigger share of mid-week diners if they are perceived to be "budget conscious". The newly frugal NOVA consumer is all about value.

Our local traffic jams are legendary and they provide an excellent opportunity to observe vehicles. The fleet seems to be changing in composition from SUV dominant to a more fuel efficient mix. Lots of Toyota Prius drivers here with special treatment in the HOV lanes (single drivers of hybrids are allowed).

I asked a few of my local contacts how business is right now. Most say its the same number of diners as this time last year. In terms of dollars, patrons are spending less. Budget specials are a requirement.

With food cost % skyrocketing due to commodity market volatility (strong upward bias), its tougher to keep costs in line. Offering budget specials which fit the current cost model is key. Pizza seems a tough segment. Lots of coupons for 2-for-1(pizzas) and special low price options (sides). This comes as flour, cheese and now fresh tomatoes are hitting record prices.

The overall restaurant market here is certainly not vibrant but weekends are packed and mid-week patrons have returned to spend those tax refund checks.

Friday, June 20, 2008

The Bureau of Labor Statistics has excellent inflation data on their website. The Commodities data includes index data for Farm Products. The index began to take a second big move up in December and May 2008 reversed the move down in April. With the Mississippi River flood plains under water, food prices will most likely remain high this summer.

Monday, June 16, 2008

With the current flooding in Iowa, America's major grain crops will likely have a lower yield in 2008. There are many factors in determining your food cost percentage. Commodity markets play a major roll in your cost of goods sold. Let's take a look at last week's market activity. The information below is provided by Foodservice.Com where you will find excellent market price data. Corn Oil has more than doubled in price since last year.